By Maria Ajit Thomas
(Reuters) - Boulder Brands Inc expects its Natural foods business to account for three-quarters of total sales within the next three to five years, driven by a growing appetite for specialized foods, particularly gluten-free products.
Consumer demand for gluten-free products surged 20 percent in the last two years and this growth is unlikely to slow, Boulder Brands Chief Executive Stephen Hughes said in an interview.
The U.S. gluten-free market reached $4.2 billion in 2012, and is poised to reach $6.6 billion by 2017, according to a report by Packaged Facts, a market research publisher.
"I think (gluten-free) is going to be one of the fastest growing trends in food for the foreseeable future," said Hughes, who has been the food products maker's chairman and CEO since its inception in May 2005.
Boulder Brands, previously known as Smart Balance Inc, operates two divisions - Natural and Smart Balance. Natural consists of its gluten-free brands and a healthier spreads brand called Earth Balance.
Smart Balance comprises items such as buttery spreads, popcorn, cooking sprays and mayonnaise.
The company acquired gluten-free brands Glutino for $66.3 million in 2011 and Udi's for $125 million in 2012, boosting revenue in the Natural division.
The acquisitions also gave Boulder Brands a significant leadership position in the gluten-free business, Imperial Capital analyst Mitchell Pinheiro wrote in a note dated June 7.
Natural accounted for 49 percent of the company's total sales of $369.6 million in 2012, up from just 10 percent in 2010.
However, sales at the Smart Balance division have slowed as health-conscious customers pull back on purchases of spreads owing to their high levels of trans fats, which have been linked to heart disease, diabetes and other illnesses. Sales in the division fell 16 percent to $46.4 million in Boulder Brands' most recent quarter.
The rapid growth in demand for gluten-free foods is due to rising awareness of gluten-intolerance, or Celiac disease, a condition which prevents individuals from eating foods that contain gluten. Gluten is a protein found in wheat, rye and barley. It is estimated that about 3 million Americans suffer from Celiac disease, according to Boulder Brands.
Boulder Brands sells breads, muffins, tortillas and pizzas in the gluten-free market. Its competitors in the space include Enjoy Life and South Tyrol-based Dr Shar.
To meet the rising demand for gluten-free foods, retailers such as Wal-Mart Stores Inc and Whole Foods Market Inc have set up dedicated shelves for gluten-free brands, making it easier for consumers to find what they are looking for.
"Of the major mainstream retailers, Walmart is perhaps the most strategically committed to addressing the gluten-free trend and are the furthest along in adding space on gluten-free products," CEO Hughes said.
Wal-Mart is Boulder Brands' largest customer, contributing 15 percent to total sales in 2012.
Boulder reported better-than-expected results in its most recent quarter, with sales rising more than 34 percent to $106.7 million, helped by the acquisitions of Glutino and Udi's.
The company said on Wednesday it was in talks with lenders to possibly enter into a new $320 million credit facility to give it further room to fund acquisitions and manage its debt. (http://link.reuters.com/cah98t)
"Going forward, our acquisition strategy is going to be predominantly in the natural channel," Hughes said, adding that the company could do a Glutino-/Udi's-sized large acquisition in 12 months.
Boulder Brands said last month it acquired Davies Bakery, a gluten-free producer, to get a foothold in the United Kingdom's gluten-free market.
"Near term, we're doing things like Davies, which is a small $3-$4 million acquisition that really enables us to leverage our current brands in the UK and ultimately Europe," Hughes said.
The company had said earlier that it planned to launch some Udi's products such as muffins and breads in the UK. The success of Udi's in the UK will determine if Boulder Brands expands into the rest of Europe, it said.
As more customers worldwide look to incorporate healthier choices in their meals, the growth in the gluten-free market presents an extremely attractive sales opportunity, the CEO said.
"My feeling is that within three to five years, 1 to 5 percent of all categories that are wheat based is either going to go gluten-free, or it is going to go away, because consumers are going to reduce consumption of them."
(Editing by Maju Samuel)